Dealing With Price Later Corn

The past few years, as the calendar got closer to September 1 and the end of the crop year, processors and feed mills scrambled to get corn to fill the gap before the new crop harvest. Not this year!

Inventories are high enough in most locations so there is excess corn. No scramble. No tight basis. The last two years allowed the farmer with price later corn and corn in the bottom of the bin to get a decent price. Not this year.

Price later corn has its merits, especially when prices are moving higher or basis is improving. It has its faults when prices are moving lower and basis is collapsing.

At this point in the year, elevators with price later corn have the physical corn shipped or are in the process of shipping it to get the good basis. If an elevator has sold the corn, they may get long September corn futures to offset their risk. This is being what is known as short the basis. The elevator hopes the basis keeps slipping, and when farmers finally settle up on their DP corn, the basis has slipped even more. For example, local basis is 10 cents under September futures in many locations with new crop at 25 to 40 cents under December futures. Waiting until October to sell your 2013 corn means the elevator or processor could make an additional 15 to 25 cents per bushel.

The price slide has been so steep that many, including myself, are wondering when some sort of a bounce will come. Of course, that question comes with another, more complicated question -- from what price will the bounce be? With so many farmers and traders looking for some green on the screen (higher prices), this week has been depressing. For the first four days, corn is down over 20 cents and beans are down 40 cents. This has made dealing with old-crop or DP corn even more difficult. Farmers using a futures/options account may have an easier time. If there is a shift in attitude or the weather forecast, for example, traders can purchase call options in order to sleep better at night.

The USDA’s interpretation of the acreage and stocks numbers will come at 11 a.m. CDT tomorrow (Friday) with the updated supply/demand reports.

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The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.